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Poverty impedes…

Poverty Impedes Cognitive Function

In a brand new study, Poverty Impedes Cognitive Function, IFMR LEAD’s principal investigators Sendhil Mullainathan (Harvard) and Anandi Mani (Warwick) along with Eldar Shafir (Princeton) and Jiaying Zhao (UBC) explore why people who happen to be in poverty may be choosing badly: It is to do with the reduced mental bandwidth available for people under stress. The state of being poor, being highly stressful, constrains a person’s mental capabilities from making wise choices, and from effectively converting opportunities into desired ends or outcomes. The study, helps us to comprehend a different dynamic that is characteristic of decision-making among people living in poverty.

Through a series of experiments, the study determines that poverty exerts a certain cognitive load on individuals and taxes their mental bandwidth whenever they think about financial problems. The poor end up with “less effective bandwidth” while making important decisions, thus making them choose badly.

The field study, done in collaboration with IFMR LEAD’s Small Enterprise Finance Centre (SEFC), takes the authors to Thanjavur in South India to study the cognitive variations in sugarcane farmers who experience cycles of poverty annually, poor before and rich after harvest. Through a series of intelligence quotient tests (Raven and Stroop) done pre- and post-harvest, more specifically, before and after receiving payment for produce, the study finds that the average number of errors committed by farmers were more before harvest than after. The farmers faced greater financial pressures pre- than post-harvest reflected in the fact that they pawned more items or had more loans before harvest. This financial stress led to diminished cognitive capacity as evident in the tests suggesting “a causal, not merely correlational, relationship between poverty and mental function”. It is not just money that is scarce, but also critical cognitive resources.

Viewed from a policy perspective, it becomes important to recognize the “cognitive taxes” imposed on the poor during well-intentioned government interventions. Changing rules and regulations, lengthy application forms, or complex incentives are all impediments for the poor accessing welfare programmes. The timing of these interventions must also be well thought out to account for variations in one’s cognitive capacity, as in the case of sugarcane farmers in Tamil Nadu, pre- and post-harvest.